This document uses the term "cost-effectiveness analysis" (Department of Clinical Epidemiology and Biostatistics 1984a.b, Detsky & Naglie 1990; Eisenberg 1989; Freund & Dittus 1992; Henry 1992) in the general sense to refer to economic evaluations that consider both the comparative costs associated with use of pharmaceutical products and the comparative clinical effects measured either in pure clinical units (effectiveness), or in health preferences (utilities), or clinical outcomes [e.g., quality adjusted life years (QALYs)], or dollars (benefits).

A full cost-effectiveness analysis includes the following 7 components :

1. All relevant costs and clinical outcomes will be included in the analysis and valued sensibly;
2. The analysis is incremental in that it utilizes the difference in costs and in clinical outcomes between one specific pharmaceutical product and another product or other alternate therapy (Detsky & Naglie 1990);
3. The stream of both costs and the clinical outcomes, no matter how they are measured, are discounted over time. Although there is controversy about the most appropriate rate, the most commonly used discount rate at present is 5% per year. Refer to Coyle and Tolley (1992), Katz and Welch (1993), and Krahn and Gafni (1993) for further discussion;
4. The perspective of the decision maker is clearly identified. The societal perspective that incorporates both direct and indirect costs and clinical outcomes should be presented in a disaggregated fashion. That is, an effort should be made to construct the analysis in such a manner as to present the direct medical costs attributed to the provincially funded healthcare system as a separate analysis from the societal perspective. The societal perspective will include all direct costs, including those borne outside the healthcare system, and indirect costs such as lost wages;
5. All sources of data for the baseline analysis are clearly identified;
6. Sensitivity analyses are used to assess the robustness of the qualitative conclusions and identify areas where further research is needed to more precisely estimate the values of those variables to which the result is sensitive;
7. The incremental cost-effectiveness ratios referred to in item 2 above are compared with other such incremental cost-effectiveness ratios for other interventions in order to determine the relative economic attractiveness of investing in this pharmaceutical product as opposed to other healthcare interventions. This requires similar units of measurement for both costs and clinical outcomes. Most current economic analyses present clinical outcomes in terms of mortality figures with or without health utilities. A common approach is to present costs in dollars and clinical outcomes in quality-adjusted life years (QALYs) gained. For this reason, we use the term "incremental cost-utility ratio" and "incremental cost per QALYs gained" interchangeably in these guidelines. QALYs are derived from utilities plus mortality figures (Drummond et al. 1987; Freund & Dittus 1992; Laupacis et al. 1992). Some "costutility" analyses will use other measures of treatment outcome such as healthy years equivalents (HYE) (Mehrez & Gaffii 1991, 1992). If common units such as QALYs cannot be used in the analyses, then a comparison to other costutility ratios will not be possible. For some pharmaceutical products, it will be either impossible or unnecessary to express outcome in units such as QALYs (see "Measuring Clinical Effectiveness (Outcomes)").

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